Never Bet Against America
- Ishfaaq Peerally
- Mar 29, 2021
- 2 min read
πΊπΈ A common theme we see in Warren Buffett's letter $BRK.B every year is to πππ«ππ§ π½ππ© πΌππππ£π¨π© πΌπ’ππ§πππ. The US Stock market $SPX500 is in a bubble, even the bond market is in a bubble with a growing wealth gap and more socialism. Should we choose to invest in other countries instead?
πThe main reason why the US Stock and bond markets are in a ππͺπππ‘π is because of Quantitative Easing from the Federal Reserve System. Nobody knows how the bubble will burst but a very likely scenario is that the Fed itself will burst it if they raise interest rates in case we have higher inflation. If the Fed doesn't act in case of inflation, real returns would be low and investors won't be happy.
π πππ€πͺπ‘π π¬π π‘π€π€π ππ© π€π©πππ§ ππ€πͺπ£π©π§πππ¨? In other Western Countries, things seems to be even worse than in the US with negative rates for example in Europe. The CAPE ratio on the S&P 500 is above 30 while in China it is around 10. But investing in China has risks since the financial system there is not as developed as in the West. Besides, China is State Capitalist country while the US is an Entrepreneurial Capitalist country.
π This ππ£π©π§ππ₯π§ππ£ππͺπ§πππ‘ πππ₯ππ©ππ‘ππ¨π’ in the US is what makes it such a good place to invest. There's always innovation and no company is safe. In 1997, GE $GE was the largest company in America and Apple $AAPL was on the brink of bankruptcy. Today, the tables have turned. In Europe (Big Firm Capitalism), the same companies that were there 50 years ago are still there. This creative destruction in America creates a large pool of possible investments. If you know where to look, you can always find investments.
π° My advice is not to look at the S&P 500 or the market in general but at individual companies. Look for companies with low market correlation and always ππ€ππͺπ¨ π€π£ π©ππ ππͺπ£πππ’ππ£π©ππ‘π¨ ππ£π π‘π€π£π-π©ππ§π’ π§ππ¨πͺπ‘π©π¨.
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My analysis on why this decade will be bad for US Stocks:
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